Question 1
Which of the following statements is CORRECT? a. If you add enough randomly selected stocks to a portfolio, you can completely eliminate all of the market risk from the portfolio. b. If you were restricted to investing in publicly traded common stocks, yet you wanted to minimize the riskiness of your portfolio as measured by its beta, then according to the CAPM theory you should invest an equal amount of money in each stock in the market. That is, if there were 10,000 traded stocks in the world, the least risky possible portfolio would include some shares of each one. c. If you formed a portfolio that consisted of all stocks with betas less than 1.0, which is about half of all stocks, the portfolio would itself have a beta coefficient that is equal to the weighted average beta of the stocks in the portfolio, and that portfolio would have less risk than a portfolio that consisted of all stocks in the market. d. Market risk can be eliminated by forming a large portfolio, and if some Treasury bonds are held in the portfolio, the portfolio can be made to be completely riskless. e. A portfolio that consists of all stocks in the market would have a required return that is equal to the riskless rate. There is no word limit. Please, write an explanation. Thank you
Question 2
Question 1. Answer the problem #9-8 on pages 347-348 of the TM textbook. TERMINAL VALUE REFERS TO THE VALUATION ATTACHED TO THE END OF THE PLANNING PERIOD AND THAT CAPTURES THE VALUE OF ALL SUBSEQUENT CASH FLOWS. ESTIMATE THE VALUE TODAY FOR EACH OF THE FOLLOWING SETS OF FUTURE CASH FLOW FORECASTS : YEAR CASH FOWS 1 1,200,000 2 1,260,000 3 4 5 1,323,000 1,389,150 1,458,608 A. CLAYMORE MINING COMPANY ANTICIPATES THAT IT WILL EARN FIRM FREE CASH FLOWS FCFs OF 4 MILLION PER YEARS FOR EACH OF THE NEXT FIVE YEARS. MOREOVER, BEGINING IN YEAR 6, THE FIRM WILL EARN FCF OF 5 MILLION PER YEAR FOR THE INDEFINITE FUTURE. IF CLAYMORE?S COST OF CAPITAL IS 10%, WHAT IS THE VALUE OF THE FIRM?S FUTURE CASH FLOWS ? B. SHAMELESS COMMERCE INC. HAS NO OUTSTANDING DEBT AND IS BEING EVALUATED AS A POSSIBLE ACQUISITION. SHAMELESS?S FCFs FOR THE NEXT YEARS ARE PROJECTED TO BE 1 MILLION PER YEAR, AND, BEGINNING IN YEAR 6, THE CASH FLOWS ARE EXPECTED TO BEGIN GROWING AT THE ANTICIPATED RATE OF INFLATION WHICH IS CURRENTLY 3% PER ANNUM. IF THE COST OF CAPITAL FOR SHAMELESS IS 10%, WHAT IS YOUR ESTIMATE OF THE PRESENT VALUE OF THE FCFs ? C. DUSTIN ELECTRIC INC. IS ABOUT TO BE ACQUIRED BY THE FIRM?S MANAGEMENT FROM THE FIRM?S FOUNDER FOR 15 MILLION IN CASH. THE PURCHASE PRICE WILL BE FINANCED WITH 10 MILLIOM IN NOTES THAT ARE TO BE REPAID IN 2 MILLION INCREMENTS OVER THE NEXT FIVE YEARS. AT THE END OF THIS FIVE YEAR PERIOD. THE FIRM WILL HAVE NO REMAINING DEBT. THE FCFS ARE EXPECTED TO BE 3 MILLION A YEAR FOR THE NEXT FIVE YEARS. BEGINING IN YEAR 6, THE FCFS ARE EXPECTED TO GROW AT A RATE FO 2% PER YEAR INTO THE INDEFINITE FUTURE. IF THE UNLEVERED COST OF EQUITY FOR DUSTIN IS APPROXIMATELY 15% AND THE FIRM?S BORROWING RATE ON THE BUYOUT DEBT IS 10% (BEFORE TAXES AT A RATE OF 10%), WHAT IS YOUR ESTIATE OF THE VALUE OF THE FIRM ? Question 2. Answer the problem #10-8 on pages 390-391 of the TM textbook. In 2008, Dub Tarun founded a firm using $200,000 of his own money, $200,000 I senior (bank) debt, and an additional $100,000 in subordinated debt borrowed from a family friend. The senior debt pays 10% interest, while the sub debt pays 12% interest and is convertible into 10% of the firm?s equity ownership at the option of the investor, J Martin Capital. Both debt issues have 10-year maturities. In March 2009, the firm?s financial structure appeared as follows: DUB TARUN INC., MARCH 2009 ACCOUNTS PAYABLE $100,000 SHORT-TERM NOTES 150,000 TOTAL SHORT-TERM DEBT 250,000 SENIOR DEBT (10% INTEREST RATE) 200,000 SUB DEBT (12% INTEREST RATE, CONVERTIBLE INTO 10% STOCK) 100,000 EQUITY (DUB TARUN) 200,000 TOTAL DEBT AND EQUITY 750,000 Dub has determined that he needs an additional $250,000 if he is going to continue to grow his business. To raise the necessary funds, he intends to use an 8% convertible preferred stock issue. Dub projects that the firm?s EBITDA (earnings before interest, taxes, depreciation, and amortization) in five years will be 650,000. Although Dub isn?t interested in selling his firm, his banker recently told him that businesses like his typically sell for five to seven times their EBITDA. Moreover, by March 2014, Dub expects that the firm will have 300,000 in cash and that the firm?s pro forma debt and equity will be as follows: DUB TARUN INC. PRO FORMA FINANCIAL STRUCTURE, MARCH 2014 ACCOUNTS PAYABLE 200,000 SHORT-TERM NOTES 250,000 TOTAL SHORT-TERM DEBT 450,000 SENIOR DEBT (10%) 400,000 SEB DEBT (12%, CONVERTIBLE INTO 10% OF THE FIRM?S STOCK) 100,000 EQUITY (DUB TARUN) 800,000 ADDITIONAL FINANCING NEEDED 250,000 TOTAL DEBT AND EQUITY 2,000,000 A. What would you estimate the enterprise value of Dub Tarun Inc. to be on March 2014? (HINT: ENTERPRISE VALUE IS TYPICALLY ESTIMATED FOR PRIVATE COMPANIES USING A MULTIPLE OF EBITDA PLUS THE FIRMS CASH BALANCE.) IF THE SUB DEBT CONVERTS TO COMMON IN 2014, WHAT IS YOUR ESTMATE OF THE VALUE OF THE EQUITY OF DUB TARUN IN 2014? B. IF THE ESTIMATED ENTERPRISE VALUE OF THE FIRM EQUALS YOUR ESTIMATE IN QUESTIONS A, WHAT RATE OF RETURN DOES THE SUB DEBT HOLDER REALIZE IF HE CONVERTS IN 2014? WOULD YOU EXPECT THE SUB DEBT HOLDER TO CONVERT TO COMMON STOCK? C. IF THE NEW INVESTOR WERE TO REQUIRE A 45% RATE OF RETURN ON HIS 250,000 PURCHASE OF CONVERTIBLE PREFERRED STOCK, WHAT SHARE OF THE COMPANY WOULD HE NNED, BASED ON YOUR ESTIMATE OF THE VALUE OF THE FIRM?S EQUITY IN 2014, WHAT IS YOUR ESTIMATE OF THE OWNERSHIP DISTRIBUTION OF DUB TARUN?S EQUITY IN 2014, ASSUMING THAT THE NEW INVESTOR GETS WHAT HE REQUIRES (TO EARN HIS 45% REQUIRED RATE OF RETURN) AND THE SUB DEBT HOLDER CONVERTS TO CMMON? WHAT RATES OF RETURN DO EACH OF THE EQUITY HOLDERS IN THE FIRM EXPECT TO REALIZE BY 2014, BASED ON YOUR ESTIMATE OF EQUITY VALUE? DOES THE PLAN SEEM REASONABLE FORM THE PRESPECTIVE OF EAH OF THE INVESTORS? D. WHAT WOULD BE DUB TARUN?S EXPECTD RATE OF RETURN IF THE EBITDA MULTIPLE WERE FIVE OR SEVEN? E. WHAT WAS THE POST-INVESTMENT AND PRE-INVESTMENT VALUE OF DUB TARUN?S EQUITY IN 2009, BASED ON THE INVESTMENT OF THE NEW INVESTOR? Question 3. Answer the problem #12-7 on pages 478 of the TM textbook. Conceptual analysis of real options: Highland properties owns two adjacent four-unit apartment buildings that are both on 20,000 square feet of land near downtown Portland, Oregon. One of the properties is in very good condition, and the apartments can be rented or $2,000 per month. The units in the other property require some refurbishing and in their current condition can be rented for only about $1,500 per month. Recent zoning changes, combined with changes in market demand, suggest that both lots can be redeveloped. If they are redeveloped, the existing units would be torn down and new luxury apartment buildings would be built on the site, each with 10 apartment units. The cost of the 10-unit buildings is estimated to be about $1.5 million, and each of the 10-apartment unit can be rented for 2,500 per month under current market conditions. Similar properties that have been refurbished are selling for 10 times their annual rentals. a. Identify the real option(s) in this example. b. What are the basic elements of the option(s) (i.e., the underlying asset on which the option is based, the expiration date, and the exercise price)? c. Estimate the value of the option to develop the property. (Hint: make any assumptions you must to arrive at an estimate.),HELLO THERE, PLEAE LET ME KNOW IF YOU ARE WILLING TO WORK ON THIS ASSIGNEMNT BECAUSE I HAVE SO LIMITED TIME LEFT PLEASE PLEASE LET ME KNOW EITHER WAY
Question 3
Celeste limited is a private company, incorporated 20 years ago under federal legislation, was audited for the first time in he year ended December 31 2013, by an auditor who issued a qualified audit opinion on the basis Celeste did not record depreciation. During the current year the vp-finance had indicated that the company wished to have an unqualified audit opinion for the year ended December 31 2014 as he anticipates that the company will go public in the near future. Management believed that a pattern of smooth earnings will be the most attractive to potential shareholders. The vp-finance has provided you, an accountant who works in Celeste finance department a list of contentious accounting issues facings he company. Required write a report to the vp-finance that addresses the contentious accounting issues. Provide support for your recommendations 1. Celeste has not recorded depreciation on its capital assets. The presidents's feelings about this subject were noted in last years report to the shareholders as follows "our capital assets are increasing in value, not decreasing. In my opinion, the recording of a fictitious expense like depreciation makes our financial statements unreliable band less useful to investors and creditors 2.during 2014' Celeste was sued by a customer who incorporated one of Celeste's components in a manufactured product that were subsequently returned by its customers due to the failure of the Celeste component. Celeste refute this claim. The amount in dispute is $250,000. Correspondence indicate that a settlement of $100,000 would be acceptable to the customer; Celeste has not agreed to this. Court proceedings will commence late in 2015. The claim has not been recorded in Celeste books 3. Celeste included expenditures of approximately $400,000 related to refining an existing product, which is now expected to have a significantly longer life thus increased as sales. Celeste plans to defer this cost and amortize it over a period of 10 years. The product life cycle has rarely been longer than 5 years in this line, but management Is optimistic in this particular case that the product will have a sales life of 10 years 4.during the year, Celeste sold a building at a gain of $200,000. The $1.4 million sales price has been included in sales, which the$1.2 million net book value has been included in cost of goods sold. 5. Celeste plants to prepare minimal note disclosure, as has been its practice in the past to reduce the time and effort that the accounting staff have to demote to preparation of the annual report
Question 4
? payroll accounting please do payroll December 9, December 11, December 14, and December 15 transactions on pages 7-18 and 7-19, in the template this is color coded Gray. Use Journal page 47.,Russell?s final biweekly pay for time worked and the vacation pay are subject to FICA,FUTA, and SUTA (employer and employee) taxes. Since Russell?s cumulative earnings have surpassed the taxable earnings figures established by FUTA and SUTA, there will not be any unemployment tax on the employer. The deduction for group insurance premiums is $8.70. Make a notation of Russell?s death in the payroll register and on her earnings record. Prepare journal entries to transfer the net pay and to record Russell?s final pay and the employer?s payroll taxes. Post to the ledger accounts. Include the final gross pay ($1,425.16) in Boxes 3 and 5, but not in Boxes 1, 16, and 18. Use the blank Form W-2 on page 7-62. In addition, the last wage payment and vacation pay must be reported on Form 1099- MISC. A Form 1096 must also be completed. These forms will be completed in February before their due date. (See Transaction Nos. 41 and 42 on page 7-69.) December 15 No. 25 Deposit with City Bank the amount of FICA taxes and federal income taxes for the November payrolls. No. 26 Deposit with the city of Philadelphia the amount of city income taxes withheld from the November payrolls. December 18 No. 27 Deposit with the state of Pennsylvania the amount of state income taxes withheld from the December 4 payroll and complete the information worksheet. No. 28 Glo-Brite has been notified by the insurance company that there will be no premium charge for the month of December on the policy for Virginia Russell. Prepare the entry for the check made payable to the estate of Virginia A. Russell, for the amount that was withheld for insurance from her December 14 pay. No. 29 Prepare an employee?s earnings record for Richard Lloyd Zimmerman, who was employed today as time clerk to take the place left vacant by the death of Virginia A. Russell last week. His beginning salary is $1,430 per month. Address, 900 South Clark Street, Philadelphia, PA 19195-6247. Telephone, 555-2104. Social Security No. 897-12-1502. Zimmerman is married and claims one withholding allowance. Zimmerman is eligible for group insurance coverage of $26,000, although no deduction for group insurance premiums will be made until the last payday in January. Department: Office Weekly rate: $330.00 Hourly rate: $8.25 No. 30 Prepare the payroll for the latter pay of December from Time Clerk?s Report Nos. 48 and 49 and record the paychecks issued all employees. Also, record the employer?s payroll taxes. Effective with this pay, O?Neill completed a new Form W-4, changing his total withholding allowances to four. Previously, he had claimed fewer allowances than he had been using on his tax return. Change his earnings record accordingly. In this pay, the president of the company, Joseph O?Neill, is paid his annual bonus. This does not affect O?Neill?s insurance coverage, which is based on regular pay. This year, his bonus is $52,000. For withholding purposes, the bonus is considered a PAY p o i n t s Prepare a Wage and Tax Statement, Form W-2, which will be given to the executor of the estate along with the final paycheck. pg 20 Time Clerk?s Report No. 48 For the Week Ending December 5, 20? Employee Time Record Time Worked TimeLost S M T W T F S Bonno, A. V. . . . 4 8 8 8 8 8 44 hrs Ford, C. L. . . . . .8 8 8 8 8 40 hrs Russell, V. A. . . . 8 8 8 8 8 40 hrs. Ryan, N. A. . . . . 8 9 9 9 9 44 hrs. Student . . . . . . .8 8 7 8 4 35 hrs. 1 hr.* Woods, B. A. . . . 8 8 8 8 8 40 hrs. Young, P. W. . . . 8 8 8 8 8 40 hrs. Time Clerk?s Report No. 49 For the Week Ending December 12, 20? Employee Time Record Time Worked Time lost S M T W T F S Bonno, A. V. . . . 8 8 8 8 8 8 48 hrs. . . . Ford, C. L. . . . .4 8 8 8 8 36 hrs. 4 hrs.* Russell, V. A. . . 8 8 8 8 D 32 hrs. 8 hrs. Ryan, N. A. . . . 10 8 8 9 8 43 hrs. . . . Student . . . . . .4 8 8 8 4 32 hrs. 4 hrs.** Woods, B. A. . . . 8 8 8 8 8 40 hrs. . . . Young, P. W. . . . 8 8 8 8 8 40 hrs.
Question 5
LITIGACION, CENSURES AND FINES Research the Internet for recent litigation, censures, and fines involving national public accounting firms. Examples of litigation cases against national public accounting firms include fines by regulatory authorities and censures by professional societies. Write a three to four (3-4) page paper in which you: 1. Analyze the primary accounting issues which form the crux of the litigation or fine for the firm, and indicate the impact to the firm as a result of litigation or fine. Provide support for your rationale. 2. Examine the key inferences of corporate ethics related to internal controls and accounting principles which lead to the litigation or fine for the accounting firm. 3. Evaluate the primary ethical standards of the accounting organization?s leadership and values which contributed to approval of the accounting issues and thus created the litigation or fines in question. 4. Identify specific conduct violations committed by the organization and accounting firm in question. Next, create an argument supporting the actions against the organization and accounting firm, based on the current professional code of conduct for independent auditors and management accountants. 5. Make a recommendation as to how regulators and professional societies may prevent this type of behavior in question for the future. Provide support for your rationale. 6. Use two (2) quality academic resources in this assignment. Note: Wikipedia and other Websites do not qualify as academic resources.
